How A Collection Agency Reduces HOA Stress
If you’re reading this article, your homeowners association must need help! I understand. I’ve spoken with hundreds of HOA board members about HOA collections over the past 16 years, and have heard some of the most outrageous reasons why members choose not to pay their dues (I’ll spare you the details). The bottom line is, either you have one (or a few) thorns in your side, or you’re facing real financial challenges, due to unpaid dues. And this happens for homeowners associations, property owners associations, condo associations, recreational communities, and about any other planned urban community assessments you can think of. I do not envy you.
While I don’t need to tell you, it bears mentioning, that this problem affects the very cohesiveness of your community, and reflects on the respect members have (or don’t have) for your board. Improving this one aspect immediately alters the course of almost any community. Again, I’ve seen it hundreds of times.
Traditional methods, like contingency collections or burying your association or its members in attorney legal fees, simply don’t work as they should. There are alternative options that do – and they’re simple and inexpensive. If you want to see proof, I’ve got plenty.
HOA Collections that are Effective and Inexpensive
Recovering association assessments is best handled early. However, if it’s been a lingering problem that began several board members ago, or your management company simply hasn’t been able to help, there’s still plenty you can do to remedy your situation. Let’s cut to the chase here…
Do your members pay other bills? What about all the other bills obstinate members are paying? Have you ever given thought to their common threads? Some are necessities they have to have, like electricity, gas, or phone services. Some are things they just want, like gym memberships, or vacations. Yet, many of these diverse bills have a common thread – one you can easily pull on to get someone’s undivided attention! How many of these bills surface on their credit? Almost all bills today reflect on a person’s credit report. Credit now affects so many things: calculating interest rates, employability, capacity to purchase wants or needs… the list goes on.
It’s not the only ingredient for effective affordable HOA collections, but it’s at the core of a common sense-based, very effective option. Many community association boards are wielding this time-tested solution with ease today.
Let’s quickly cover all the elements that come together, to resolve delinquent dues rapidly.
Today’s professional HOA collection services offer:
- Skip Tracing: This electronic capability locates delinquent homeowner’s most accurate contact information (phone numbers and address) – even if they live out of state or own rental properties, or undeveloped lots in your association.
- Clear Communications: A series of professional, polite, and progressively uncompromising letters, coupled with phone calls, text messages, and emails, motivate payment. In fact, phone calls are the most effective means of motivating members to get current.
- Members Pay Boards Directly: Here’s the single most important aspect of effective things an HOA collection agency can do. By having members always pay their board (or its agent) directly, you eliminate ‘payment friction’. This single step nearly eliminates members’ complaints over collects – and it works!
- Credit Reporting: Employing the consequence of reporting unpaid dues (as a collection account) to all three major credit bureaus (Equifax, Experian, and TransUnion) compels homeowners to rapidly resolve unpaid assessments, in order to protect their credit. This too works!
- Payment Plans: Boards should always set any parameters for payment options because the boards know their community best.
Professional HOA Collections Agencies
Delinquent dues strain an HOA’s budget and reserves account, causing deferred maintenance, imperiling amenities, and risk having to increase fees for paying members. Trying to figure out how to collect delinquent HOA dues on their own is a major time-suck (especially for self-managed HOAs), and is highly taxing emotionally for board members. This is where partnering with experts in HOA collections is so valuable.
What’s worse, many of these agencies require you to “assign” your delinquent dues accounts to them. This means you’re handing over partial ownership of your accounts receivables, and in doing so, you may lose control over the process entirely. Selling a home with unpaid assessments becomes complicated, and your HOA may be obligated to pay the collection agency, even when the dues were recovered through a sale of the property.
The solution? Choose an agency that offers a thorough vetting process, communicates professionally with homeowners, maintains harmony with members who are delinquent, and prioritizes your board’s control over the collections process.
By outsourcing association collections, HOAs gain a team member who adds:
- Expertise In Compliance: National-level agencies stay abreast of all state and federal laws, including the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). They ensure all their services are legally sound, and harmonious with your community’s values.
- Efficiency: With a well-balanced approach, coupled with effective time-tested methods and state-of-the-art tools, a professional agency achieves higher recovery rates in less time and with lower expense than most in-house efforts.
- Preservation of Community Harmony: Having a neutral third party locate and motivate homeowners to pay you avoids any awkward encounters with members, and engenders a respectful relationship between board members and their community. And, members who pay timely always respect boards immensely for handling the undue burden delinquencies put on a community.
Key Characteristics to Look For in HOA Collection Services
Selecting the right collection agency is crucial for your HOA’s success. Look for these attributes in the agency you choose::
1: Experience with HOAs
Work with a national collection agency that specializes in community associations. If they have decades of experience, they’ll understand the nuances of navigating accounts receivable recoveries while upholding community values. They understand these are your neighbors. They’ll also be well-versed in all state and federal association-specific rules, regulations, requirements, statutes, and laws.
2: Fee Structure
Choose an agency with a transparent fee model (and no other charges or hidden costs). Flat-fee structures are often more predictable and cost-effective than contingency-based models, which may take a significant percentage of recovered dues. A flat fee collection cost can be added to a homeowner’s balance – whereas, courts have held that contingency fees cannot be because they’re based on how much a homeowner pays (which is unknown when the account is submitted). You can click here to better understand HOA collection agency fees and services.
3: Compliance and Insurance
Ensure the agency not only knows and adheres to all relevant statutes, rules, regulations, and laws; but that they also carry proper insurance coverage, including errors and omissions (E&O) insurance. Between this and a collection agency’s legal department, boards and their communities have multiple layers of liability protection.
4: Communication Practices
One of the most effective tools for motivating payment is the risk of being credit reported as a collections account. If the HOA debt remains unpaid after roughly 90 days, the agency reports the delinquent dues to all three major credit bureaus (Equifax, Experian, and TransUnion). Unlike HOA liens, which only reflect on more sophisticated credit reports, collection accounts directly impact a homeowner’s credit score; and show up on even the thinnest of credit reports.
5: Credit Reporting
Agencies that report delinquencies to all three major credit bureaus – Experian, Equifax, and TransUnion – offer a powerful and effective incentive for homeowners to get current (and stay current).
6: Data Security
In today’s environment, it’s essential to only work with an agency that utilizes secure data transfer systems, to protect your community members’ information and privacy.
Benefits of Partnering with a Professional HOA Collection Agency
Choosing a professional HOA collection agency offers many advantages beyond just collecting unpaid assessments:
Financial Stability: By promptly addressing your association’s delinquencies, your collection agency assists in maintaining your HOA’s budgets. Funding necessary repairs, and avoids having to raise fees for all members is essential.
- Time Savings: Once delinquencies are in the hands of a professional agency, board members can focus on other responsibilities; such as planning future improvements, maintaining amenities, and enhancing community spirit and growth.
- Improving Members’ Satisfaction: A just and professional collection policy reassures paying members that their board is committed to equity and the community’s financial health. And by bringing non-paying members into the fold, the board achieves a more wholehearted community experience.
- Avoiding Foreclosure: Foreclosure – or even the threat of it – should only be used as a last resort. The damage it causes to the heart of your community, its relationships, and even paying members’ property values should never be taken lightly. Always use a collection agency that offers an alternative, more subtle yet effective approach, before declaring financial war on your neighbors. Resorting to such measures is costly.
Questions to Always Ask Before Hiring an HOA Collections Partner
These questions are your yardstick in measuring the qualifications of a community collection agency:
1: Are you a national firm? (This tells you that they’re able to collect from members who may be out-of-state)
2: How much experience do you have working with HOAs? (Always ask for long-term references)
3: Are you licensed and insured in our state?
4: What collection methods do you use, and how do you communicate with delinquent members?
5: Do you report delinquencies to all three major credit bureaus? (Also ask: How do you report?)
6: What is your fee structure, and are there any hidden costs or charges?
7: What is your expertise in complying with association laws and regulations?
8: Do you carry proper insurance coverage? (Also ask: Can our community be a named insured?)
Final Thoughts
Today, removing the burden of assessment delinquencies from boards and the communities they serve, can be done in a simple, effective, and neighborly manner.
Knowing how to choose the right HOA collection agency is so important, because hiring the right agency – one that offers compliance expertise, respectful communications, and an effective strategy, with a cost-effective solution – can help your community rapidly recover its financial stability. Whether you’re collecting a few overdue accounts, or resolving a more widespread issue, the right collection partner can make all the difference in your board’s world.
You can call us at (800) 810-0015 to learn more about how a professional collection agency can help support your HOA. And together, we can build a stronger, more secure future for your community.